Mitigating and adapting to the effects of climate change is perhaps the defining challenge of this century. Business leaders understand that industry will play a key role in driving the profound transformational processes necessary to transition to an efficient low-carbon economy. But when it comes to addressing climate change as a business issue, firms still face significant technical and financial barriers. Climate change consultants can be key partners during this transition. They bring multidisciplinary expertise, implementation know-how, and the ability to catalyze systemic change and innovation.
Defining Climate Change Consulting
The field of climate change consulting overlaps with other consulting practices such as management and sustainability consultingso it is appropriate to explicitly define it here. Climate change consulting refers to any advisory service that supports businesses in identifying, preparing and managing the direct effects of climate change.
Climate change is a systemic risk. The rise of anthropogenic greenhouse gas emissions leads to atmospheric changes that result in physical changes in the climate system and lead to socioeconomic responses to these changes. Every step in this causal chain is riddled with large uncertainties. Because many of these uncertainties emanate from complex systems that are poorly understood, climate change has been called a problem of “deep uncertainty” (Lempert, Groves et al. 2006). Businesses will devote resources – and seek external advice – to minimize uncertainty because ensuring business continuity relies on strategic planning based on “likely, central” estimates (Llewellyn 2007).
Climate change consultants understand the firm’s need to remove as much uncertainty as possible from the strategic planning process. With deep and up-to-date knowledge of climate science, consultants determine the potential impacts on a firm’s value chain. Therefore, a key trait of a climate change consultant is the ability to translate science into the potential and plausible scenarios a firm may face. Specifically, consultants advise firms on potential resource scarcity and weather-related risks stemming from climate change (Verdantix 2009).
Climate change will have broad-ranging impacts on the global economy, the financial markets, the physical landscape, and the overall business environment (IPCC 2007; Mercer 2011). As a result, business requires new responses to the external forces that will be influenced by climate change such as technology, policy, market, and investment. Therefore, climate change consultants help firms prepare by reducing their greenhouse gas emissions, mitigating physical and regulatory risks, and uncovering opportunities for low-carbon products and services.
As of 2008, the global climate change consulting market was valued at $1.9 billion. The U.S. share of the market was $670 million and estimated to grow significantly over the next five years (CCBJ 2008). Despite an economic recession and lack of political support, the climate change industry grew 2% annually for 2009 and 2010. This consulting segment has been likened to the environmental engineering and consulting industry, which grew from nearly zero to $27 billion in 2008 (CCBJ 2008).
Corporate spending on low-carbon technologies, products, and services is on the rise. A 2010 survey indicated that 70% of firms with revenue of $1 billion or more intend to increase their spending on climate change initiatives over the next two years (Verdantix 2009). A recent survey found corporate spending in environmental measures and green product development will continue to rise in 2011 (Makeower 2011). Nine sectors related to climate change such as low-carbon power, energy efficiency and green building keep growing and already represent a $320 billion industry (CCBJ 2008).
To analyze the competitive context of the industry, we selected a total of 16 consulting firms with substantial practices in the areas of energy efficiency, environmental management, natural resource optimization and sustainability (see table below).
Table 2. Sample of Market Players
The firms that make up our sample represent the diversity of firms that are vying for a share of this growing market. Specialty consultants compete with global management consultancies, accounting firms, law firms and insurers for intellectual leadership in climate change consulting (CCBJ 2008). In addition, these firms leverage their respective expertise to offer specialized services such as carbon trading, energy efficiency, and green building design.
Management & Advisory. Global management consultancies have leveraged their existing client relationships, breadth of industry experience, and marketing abilities to compete effectively in this space. According to a recent survey, 60% of firms that hire climate change consultants seek advice on how to incorporate climate risks into their business strategy. This plays in the favor of these firms, which possess deep expertise in sector-specific strategic planning. Large management consultancies have also acquired smaller first-movers and built their climate change consulting practices through acquisitions.
Engineering Consulting. Engineering firms have entered this consulting niche by offering very specialized services. These firms offer capabilities in regard to green building and the improvement carbon efficiency of industrial processes.
Environmental Consulting. Environmental consultancies such as ERM, ICF International and CH2M Hill leverage their deep risk management and regulatory expertise to help companies manage their GHG footprint. Environmental consultancies are sought after particularly by industries with significant environmental impacts such as automotive, industrial products and energy (Verdantix 2009).
Sustainability consulting. These types of firms represent both pioneer and novice players in the industry. Sustainability consultancies tend to be smaller organizations and staffed with the best of talent. A trend of consolidation is leading to fewer players and more specialized players. New entrants, such as Hara, differentiate by becoming implementers of IT-driven solutions to carbon management.
To further analyze the industry, we catalogued the climate-change related services offered by the 16 companies in our sample. We identified 34 service groups. These are descriptions of the most salient ones:
Business Strategy. Building customized strategies that help business to reduce operational costs, implement sustainability performance standards and improve compliance with existing regulations.
Greenhouse Gas Footprint. Measuring and monitoring the GHG emissions and providing knowledge regarding the different existing inventory scales such as international, national and state.
Energy Efficiency. Conducting energy audits, designing and/or implementing cost-effective improvements and helping meet targets of desired green label (e.g., LEED).
Carbon Management Strategy. Often paired with footprinting, this entails understanding, managing and reducing the company’s carbon emissions.
Regulatory/Policy Advice. Translating for businesses what climate change policy, such as cap-and-trade legislation, means for them and providing informed assessments regarding the likelihood of future policy.
Sustainable Supply Chain. Assessing the supply chain for potential improvements in the usage of water, fuel sources and other raw materials in order to increase efficient use and save the company money.
Clean-ech Advice. Assisting business to reduce their emissions or prepare for the physical effects of climate change by informing businesses of the range of technology options suitable for their work and supplying implementation.
Voluntary Carbon Offsets. Designing, developing, and verifying carbon offsets for businesses who desire to offset their emissions or who want to participate in carbon finance and the carbon markets.
Carbon Markets Trading. Helping companies comply with their legally binding cap, such as the European Union Emission Trading Scheme, by understanding the market and purchasing necessary allowances or developing offsets and selling excess credits when it is in the business’ interest.
Global warming is likely to prove a powerful transformative phenomenon – like globalization or the ageing of populations – that will change the economic landscape in which industry operate. Similar to how globalization led to the rise of the multi-national corporation (MNC), climate change will give rise to the sustainable enterprise. Consulting will be a key tool for companies seeking to successfully operate in this new competitive context. Policy uncertainty, bolder corporate sustainability commitments, cost savings opportunities and the promise of new markets will continue to drive growth in the industry.